Gold Resource Corporation (NYSE-A:GORO, ETR:GIH, FRA:GIH) revealed that it has signed a binding letter of agreement with Aquila Resources Inc (TSX: AQA) setting out the key terms of a proposed acquisition of all the issued and outstanding common shares of Aquila by way of a plan of arrangement under the Business Corporations Act, Ontario.
Following the transaction, Colorado-based Gold Resource said it will acquire the Aquila shares for 0.0399 of a GORO share per Aquila share. Based on the 20-day volume-weighted average price (VWAP) of GORO's shares on the NYSE American stock exchange on September 3, 2021, the exchange ratio represents a 29% premium to the 20-day VWAP of Aquila's shares on the Toronto Stock Exchange.
“The exchange ratio represents consideration of C$0.09 per Aquila share, reflecting a premium of 12.5%, based upon the closing prices of the Aquila shares and the GORO shares on September 3, 2021,” said the company. The per share price implies an aggregate acquisition price for 100% of the outstanding Aquila shares of approximately C$30.9 million, it added.
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On closing the transaction, the existing GORO and Aquila shareholders will own approximately 85.1% and 14.9%, respectively, of the combined company on a fully diluted basis.
In a statement, Gold Resource CEO Allen Palmiere said: "This proposed business combination offers an attractive opportunity to the shareholders of both GORO and Aquila. By combining our complementary assets, we will enhance our mineral inventory and add jurisdictional diversification to our project portfolio.”
“The combined company will become a new intermediate gold producer following the commencement of production at Aquila's Back Forty Project, and its shareholders can look forward to the potential of a company that is expected to benefit from a peer leading growth profile, underpinned by a healthy balance sheet and strong cash flow capable of supporting the development of the Back Forty Project,” he added.
Palmiere emphasized that the company looked forward to successfully completing the deal.
The firm highlighted the benefits of the transaction to GORO and Aquila shareholders as follows:
- Based on the 20-day VWAPs of the GORO shares and the Aquila shares, the transaction offers a significant premium to Aquila's shareholders of 29%;
- The transaction is expected to be accretive to GORO shareholders on a net asset value basis, and to be similarly accretive to GORO shareholders with the start of production at the Back Forty Project, which is anticipated to occur in late 2024;
- Enhanced market presence and re-rating potential. Following the completion of the transaction, GORO is expected to continue to be included in the GDXJ and to benefit from an enhanced capital markets profile in the US and Canada, as well as more trading liquidity;
- The transaction gives shareholders the opportunity to participate in the ongoing growth of a multi-jurisdictional, diversified precious and base metal producer with exposure to gold, silver, zinc, copper and lead through GORO's producing Don David Gold Mine in Oaxaca, Mexico and Aquila's Back Forty Project in Menominee County, Michigan;
- The combined company is expected to benefit from a peer leading growth profile, a robust balance sheet with no debt and cash of US$30.2 million at June 30, 2021, and free cash flow generation from its Don David Gold Mine and the synergies that generally accrue from scale in the areas of general and admin expenses;
- GORO anticipates that its gold resources have the potential to increase in excess of 500% upon completion of the transaction.
Aquila's largest shareholder, Orion Mine Finance, which holds 28.6% of the issued and outstanding Aquila shares, has confirmed to GORO that it is supportive of the transaction.
The letter of agreement has been unanimously approved by the boards of both GORO and Aquila.
“The Letter Agreement provides for a period of up to 45 days of exclusive negotiations by Aquila with GORO with a view to entering into a mutually acceptable Arrangement Agreement,” said the company.
Contact the author Uttara Choudhury at uttara@proactiveinvestors.com
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